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September 8, 2003

nsight Into Investor Conduct Helps Money Manager B

An edited excerpt from the Sept. 1, 2003, edition

It's sometimes said that "those who can't do - teach." But that's one adage you can't apply to Josef Lakonishok. He does both. Currently a finance professor at the University of Illinois in Champaign-Urbana and an academic for 26 years, Lakonishok's credentials as a scholar and a teacher are impressive.

A frequent lecturer at investment symposiums and conferences, the 57-year old scholar has published more than 80 high-brow articles and papers on stock market characteristics and anomalies, was co-author of a ground-breaking book on the "January effect" (stocks that were beaten down at the end of the year tend to bounce back the following January) and established himself as an expert in the field of behavioral finance, which studies how people make judgment errors when handling their money.

Since the late 1980s, he has been acting as a financial adviser and consultant for companies and institutions, and in 1994 he went into business full time with two other finance academics, Andrei Shleifer of Harvard and Robert Vishny of the University of Chicago. Each man provided the first letter of his last name to form LSV Asset Management, a Chicago-based money manager with $14 billion under its wing, including LSV Value Equity Fund (LSVEX), the company's only mutual fund.

The bulk of the $14 billion under management by LSV is spread out over 10 separate value investment strategies, including small-, mid- and large-cap funds as well as an international portfolio.

Lakonishok's oldest fund, devoted to large-cap plays, has returned 14.3% since inception in 1999 (through the end of July), compared with a 10.9% for his benchmark Russell 1000 Value Index and 10.2% for the S&P 500. Over the past five years, the fund has returned 5.4%, compared with the Russell's 1.7% and the S&P 500's -1.1%.

In April 1999, Lakonishok plunged into the world of mutual funds, establishing LSV Value Equity to provide smaller institutions, friends, associates and individual investors access to his trading strategies. The fund is up 15% so far this year, or about 1.5% ahead of the fund's two benchmarks, and since inception, it is up an average of 4.7% a year, compared with a negative 0.5% by the Russell Index and a minus 4.5% by the S&P 500.

He looks for companies that are relatively cheap because they generate "a lot of earnings, cash, sales, dividends, and have assets." And he finds smaller companies generally more appealing than large ones.